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A retirement goal of Freedom 52

What’s the right age for Mom and Dad to step back? It might be a lot younger than we have traditionally thought

It is an early fall afternoon, and while their four young children bounce across this picturesque New Brunswick dairy farm, 35-year-old Joas van Oord and his wife Lisa talk about their dreams.

In the barn, that same afternoon, the farm’s 58-year-old patriarch, Maarten van Oord shows off the farm’s new robotic milker, and as he does so, he reveals the contentment that underlies his fine streak of enthusiasm.

Later, as Joas walks down the feed alley, he tells a story of succession and retirement, including not only his father’s but how he too is already planning retirement for himself.

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As he talks, his 55 milk cows calmly chew their cuds, waiting to go into the new robotic milking station and produce an impressive average of 39 kgs a day. The quiet, though, is deceptive. This farm may be idyllic with its cows and its tree-covered hills, but it is humming with business smarts and energy.

The van Oord family made their last intergenerational transition a mere eight years ago, when Joas was only 27 and his dad in his early 50s. Now it’s time for Joas to look ahead.

“My goal is freedom 52,” says Joas, chuckling a little at the slogan stolen from the advertising campaign of the 1980s. “I want to be able to retire about when my dad did.”

In farm terms, that’s early, of course, but he also believes in an early start, somewhere between 25 to 35 years old, depending on the individual. “You need the energy to go at it, and need a long time to pay down debt,” Joas says.

In 2003 Joas graduated with a degree in agricultural economics and he expressed an interest in taking over the farm, after years of working with his dad and doing relief milking. His four siblings weren’t interested and it seemed like a good fit. But it was too early. Maarten was only 47 at the time and felt he and his wife Caroline needed three more years to save up enough to retire. That’s because five years earlier their barn had burned down, 46 days after they had finished paying off the mortgage on the farm. They had been debt free for less than two months.

Although it was a financial setback at the time, rebuilding was a chance for Maarten to design a barn to operate as efficiently as possible for the 60-cow milk herd, and also to make it easier to adopt changes going forward.

Joas explains their goal is to match the facilities to the quota, land holdings and labour force, relying on improved production and cost control to push to the next level. This way, they don’t have to hire any staff while keeping their total animal numbers below 100.

It’s a balanced, low-cost-system approach, used by many smaller farms to counter economies of scale. Currently, Joas is down to milking 55 cows to fill 77 units.

Although the farm owns 785 acres, only 150 acres are workable and they rent an additional 37 acres. They grow all their own feed (corn silage, grass and grain) and add some supplement. They’re also shifting from natural grasses to seeding higher-protein forages.

“We try to match the equipment with the land, the cows, quota and labour,” says Joas. “I also try to have the farm’s business efficiency maxed out.”

Getting started means getting out

Instead of coming right back to the farm after graduation, Joas and his new wife, Lisa headed to B.C., and while Lisa completed a two-year program in horticulture there, Joas worked at a ski resort for a year and later found work with Chilliwack farmer and serial entrepreneur Bert Tuytel.

Tuytel moves through farming enterprises, expanding and selling according to profits and asset values, with individual enterprises including chicken, dairy, cedar trees and ET show cows.

Having a mentor like Tuytel taught Joas about risk management, and also about looking for opportunities. “He’d risk everything and jump in,” says Joas. “Bert taught me how to pay attention to details and always ask what else you can do with your assets.”

When it was time for Joas and Lisa to come home, it didn’t take them long to reach an agreement with Maarten. Within one year of their starting the process, their lawyer had set up a corporation and a shareholders agreement, and had transferred the assets.

Behind the structure and dollars was trust, and it was guilt free. Maarten had not grown up on a farm in Holland before he immigrated to Canada and bought the rundown place outside of Fredericton, New Brunswick in the early 1970s at 21 years of age. His perspective is that family needs to be happy, first and foremost.

“Every day my dad says, don’t dairy farm for me,” says Joas.

Maarten provides labour, but knows his job isn’t to call the shots.

Maarten provides labour, but knows his job isn’t to call the shots.
photo: Maggie Van Camp

At 52 years old, Maarten sold the farm to Joas based on an FCC evaluation that put quota at $19,000 to $21,000 per unit (they simply agreed to split the difference in the price to $20,000), plus 130 workable acres, barn, house, machinery and the livestock. The farm built a new house for Maarten, about 10 km away.

Joas borrowed $1.1 million from FCC. “But I paid my mortgage off,” says Maarten.

Subsequently, dairy quota values soared up to $30,000 a unit until the P5 boards (including Ontario, Quebec, Nova Scotia, Prince Edward Island and New Brunswick) put a quota price cap at $25,000 per unit. Starting this past August that cap dropped to $24,000.

Verbally, Maarten has also agreed to work for free for 10 years, doing all the cropping and mechanical work, and leaving the management and financial decisions to Joas. Although he’s at the farm working every day, and they don’t always agree, father doesn’t criticize or undermine his son. There’s respect and trust between them. “Right away, Dad said: ‘The books and cows are yours,’” says Joas.

This agreed labour term allowed Joas to do some forward labour planning and it allowed Maarten to think about how retirement will look. It’s giving him time to ease into retirement and take up new interests. “I don’t want to be hanging around bugging anyone,” says Maarten.

Farm ownership transition is often the most stressful times of a farmer’s life, says Len Davies, Davies Legacy Planning Group Inc. But it’s so different now compared to when previous generations of farmers retired. A lot of farming parents maybe knew one millionaire when they were young, and now they are all millionaires.

It works better if you allot some time to make this adjustment. “Holidays and hobbies can become habits,” Davies says.

Another trend Davies sees is the shift in the younger generation’s approach to work-life balance. “It used to be that you farmed and the family took care of itself, but now family is a priority.”

With the vast majority of Canadian parents both working, there’s been a shift toward spending quality time with their kids and their kids’ activities.

“Parents are shocked when their son will shut off the tractor to go to his kid’s ball game,” says Davies.

Through his experiences leading the Young Farmers group in New Brunswick, Joas has heard many horror stories about farm transfers. Most problems start with the older generation either not saving enough off farm for retirement and succession or letting greed and control take over, he says.

Davies often sees the opposite problem. Many older farmers worry too much about whether their son or daughter will make it farming, so they tend to short themselves. He recalls a farmer who was living in a lean-to built on the machinery shed, giving a $2-million farm to his son.

“If the next generation gets something for nothing, then it’s worth nothing to them,” says Davies. “Someone is going to sell the farm someday.”

The process has to be balanced without shackling so much debt to the younger generation that they can’t expand. This is when having a third party crunch some numbers can remove some of the subjectivity.

It helped the van Oords that Maarten has another non-farm income source so he could give Joas a break on the price of the farm.

In partnerships, having off-farm income and savings can cause inequities for retirement and succession planning, and everyone needs to be aware of these factors early on. For example, if one brother’s spouse has a good pension and the other brother’s wife worked on the farm and has no pension, the farm might want to make retirement investments on her behalf.

Another idea to consider with multiple shareholders is to include a trigger in the shareholders agreement stating when growth gets frozen. Otherwise, for instance, a brother-uncle might hang on forever and glean the growth from a succeeding nephew’s effort. If you define those points earlier in the shareholders’ farming careers, it’s easier to decide, says Davies.

The van Oord farm bought a life-insurance policy on Maarten for the other siblings instead of involving them as shareholders.

The van Oord family farm.

The van Oord family farm.
photo: Maggie Van Camp

Yvonne Thyssen-Post, farm financial adviser based in Nova Scotia says that it’s better to not include non-farming shareholders. “If they are not involved in the farm, they should not be a shareholder,” she says matter-of-factly.

Joas believes all farmers should continue to ask themselves what they want from their farms. “Right now I want to be able to make a living from it, to raise my family and save enough money off farm to retire on,” says Joas.

He also wants to be able to give the farm to his kids, although he realizes that his small farm likely won’t be enough to sustain the next generation, and that in another 30 years they’re going to need to build a new barn. “This is going to be just a stepping stone for them,” he says.

Although they continually reinvest in improving the farm, they also make sure to include off-farm investments. Joas and Lisa are creating wealth outside of the farm by investing in non-farming land via waterfront property.

“There are times in farming when you just have to step up,” Joas says.

Additionally, they reinvest $1,800 a month farm income in a very secure insurance-investment program that they’ll be able to use for retirement. This amount is about what he’d pay out for debt if they’d maxed the carrying capacity of their dairy farm (30 to 35 per cent). “So it’s like a mortgage payment and soon you don’t even notice it,” Joas says.

Joas also carries critical illness, disability, dental and medical insurance. “Insurance has to be a major pillar for succession planning, and it’s an automatic way to put money away for retirement,” he says.

“Start planning for succession the first year you start farming,” Joas adds. “Then it’s just part of the process.”

Plan for retirement early

Despite examples like the van Oords, farm adviser and succession planner Len Davies finds that the proactive approach to retirement among farmers is still very rare.

With the cost and scale of farming assets required today, there are many people who want to retire or pass on the farm, but simply can’t afford it. “If the successor is 50 and the child is 21 and you’ve got debt, you’re in a better position to start some planning process than if the successor is 30 and the person retiring is 60,” Davies says.

It’s not all about decreasing the tax implications of transitioning ownership. Nor is it all about debt or having enough assets. “First,” says Davies, “you need to figure out what you’ll need to live on.”

For that, Davies has a software program to plug in the information. In an hour, he can have a pretty good idea of what the future can look like with pensions, investment income and realistic off-farm living expenses.

Nor is Davies alone. Most financial planners can help you do this, if you ask. But Davies says you should start asking younger.

“From the time you’re 55, update this every year so you can talk about it with your spouse and truly understand it,” says Davies. “Every time you do it, you’ll get more comfortable with the idea of retirement and what it will look like for you.”

It’s also easier to adjust your plans and adapt to change when you know where you’re going well in advance. By starting to figure this out early, it will give you a realistic time frame for building your savings and off-farm investments, and it will also give you more choices in how the farm can support the retirement plan and succession.

For many farmers, planning for a longer time also allows for an adjustment to the power shift, from being at the centre of every decision to being peripheral and considering others’ needs, even if they’re beyond the farm. Many spouses have different dreams and priorities, such as travelling or living in town. Some farmers have a difficult time giving up all they’ve ever known and the very core of their self-worth.

“If what I do is who I am, then what am I without the farm?” they ask. But, as Davies and other retirement planners point out, having a plan can help you create your own answers to that question, in ways you otherwise might never have imagined.

Shareholder agreements

Develop a shareholders agreement to help solve the “what ifs” of death, disability, disagreements and divorce. “If you don’t have the business structure laid out, it’s like slipping in the mud,” says Yvonne Thyssen-Post, farm financial adviser from Nova Scotia.

Having a legal structure to deal with these situations lays out a pathway to follow.

Of course, you also want a loving family. In these situations, it is a blessing.

Yes, family and business are two separate things, but having the business details worked out can increase the odds that you’ll maintain a united, loving family because you’ll avoid much of the confusion and many of the complications that can turn into landmines.

With succession, these can be multiplied along generations, over many decades. Thyssen-Post says parents really need to think long term and should try to look for all possible impacts that succession can have on your family.

Don’t leave out family dynamics when looking at the possibilities. How would Miss Bossypants react? Does someone have the tendency to turn to alcohol, or fall into depression when things go wrong? Does one sibling have a strong competitive nature? Is anyone a control freak?

Next, look at possible scenarios and how the shareholders agreement will manage such situations.

Part of a shareholders agreement is a buy-sell agreement. This tells you how the shares are going to change hands, and it does things like lay out timelines.

Make sure everybody knows what it says and signs off on it, says Thyssen-Post. You will still likely need patience and compassion, but at least everyone knows what needs to get done in an emotional situation.

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Senior Business Editor

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